Yesterday, I noted an article published in New York Times, Singapore Makes a Pitch to Draw the Wealthy, describing a remarkably fast transformation of Singapore economy. Singapore has scored very high in the degree of economic freedom and in the ease of doing business. In 2006, the Asian tiger reached the top of the world as the most business-friendly environment in the world. According to IMD, the economy is the third most competitive in the world, surpassing all European economies with a particular emphasis on business performance, high-quality infrastructure and economic environment.
Singapore ">is also among the world top in ICT competitiveness (3rd place according to WEF) measured according to general economic performance, macroeconomic conditions, regulatory environment and readiness to benefit from the effects absorbed by the ICT.
Singapore's financial sector has proven resilient in series of economic shocks (IT bubble, Asian financial crisis) and consequent asset price decline in the past years. Financial sector is well capitalized and Singapore's global integration does not pose a stability concern due to the inclusiveness of the economy to world financial markets. In 2004, the IMF issued a report on Singapore's Financial System Stability Assessment where key recommendations are stressed as well as closer details and the overall analysis of the performance of Singapore's rapidly growing financial industry. However, a substantial government intervention, restrictive control and its diversified minor bank ownership shares undermines the competitive edge of the financial sector in which firms compete primarily on venture capital, fund management and insurance.
I recently read the presentation, Singapore Competitiveness: A Nation in Transition, presented by professor Michael Porter of Harvard Business School. As a small-scale economy, Singapore has absorbed significant benefits from the globalization of markets, value-chain and knowledge on a challenging path from an economy based on efficiency into an economy fueled by innovation and productivity improvement. With an average of 4 percent real GDP per employee growth, Singapore outscores most of its international counterparts, lagging only behind high-growth markets such as India. The pace of innovation is performing high growth rates. Compounded annual growth average of U.S-registered patents between 2000 and 2005 stood at approximatley 6 percent, one of the most powerful growth rates in the world indicating a high level of innovation as the major fuel of growth.
On the other side, the infusion of private secrecy laws and low corporate and individual tax burden magnetized a growing volume of foreign direct investors. Currently, top individual income tax rate is 20 percent while 18 percent rate refers to corporate income tax with some additional tax preferences and differences in the taxation od different types of company. As a percentage of the GDP, total tax revenue in 2006 equaled 13 percent, reflecting a competitive tax jursidiction which benefits from enforcing the open-market policy of tax competition.
It is also an interesting comparison of Slovenia's and Singapore's competitiveness of business environment as both nations are currently in transition. Slovenia scores miserably low in grading the economic freedom while Singapore's performance of economic freedom is the second highest in the world. The overall innovation gap between Slovenia and Singapore is huge. In Total Factor Productivity in Slovenia, dr. Mico Mrkaic showed that the TFP growth is too slow in Slovenia as well as the nature of economic growth throughout the transition period emerged from capital deepening with a very low innovation output in supporting GDP growth. I recommend the reading of Modelling Small Economy Exports: The Case of Singapore (Abeysinghe, Meng Choy 2007) to see the difference in export modeling innovation between Slovenia and Singapore, especially in terms of export cluster portfolio as the foremost engine of boosting competitiveness of a small and open economy such as Singapore.